What Is The Difference Between GDP And GNI?
GDP (Gross Domestic Product) and GNI (Gross National Income) are both measures of a country's economic performance, but they focus on different aspects of the economy. Here's a breakdown of the key differences:
1. Definition:
- GDP: Measures the total value of all goods and services produced within a country’s borders over a specific period, usually a year or a quarter.
- GNI: Measures the total income earned by a country’s residents, regardless of where it is produced, whether inside or outside the country.
2. Scope of Measurement:
- GDP: Only includes the economic activities within a country. This includes income from foreigners working in the country but excludes income from citizens working abroad.
- GNI: Includes the income earned by residents, whether they are in the country or abroad. It adds income from citizens working abroad and subtracts income earned by foreigners within the country.
3. Formula:
- GDP = Consumption + Investment + Government Spending + (Exports − Imports)
- GNI = GDP + Net Income from Abroad (which includes things like wages, investments, and remittances)
4. Example:
- If an American company operates a factory in another country, the profits from that factory would not be included in the U.S. GDP, but they would be part of the U.S. GNI because the income is earned by a U.S.-owned company.
- Conversely, if foreign companies are operating within the U.S., the profits they generate would be included in U.S. GDP but not U.S. GNI, as those profits belong to foreign entities.
5. Usefulness:
- GDP is commonly used to measure the economic strength of a country’s domestic economy and compare it with other nations.
- GNI gives a better understanding of the overall economic well-being of a country’s residents, including income earned abroad.
6. Example of Differences:
- For countries with large numbers of citizens working abroad, such as the Philippines, GNI might be higher than GDP due to remittances sent home.
- For countries with significant foreign investment, like Ireland, GDP can be higher than GNI because many profits generated within the country flow to foreign owners.
In summary:
- GDP focuses on production within the country.
- GNI focuses on the income earned by citizens and residents, regardless of location.
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